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Finding Value in Northeast Regional Banks

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Last month, I took a look at some regional banks, breaking them down by region. When I looked at the Northeast region, I found 11 banks that I thought would be good investments. Now that earnings season is mostly over, I thought it would be a good time to see whether the quarter helped any banks move or enter the rankings. Regional banks might also see an increase as customers of larger banks vote with their feet and move to local banks.

What is the Northeast?
When looking at the regional banks, it is important to note that some of the regions have a certain amount of overlap. The Northeast region generally includes banks from the six New England states, as well as banks in New York, Pennsylvania, and New Jersey. Region-leading M&T Bank (NYSE: MTB  ) is headquartered in Buffalo, N.Y., and has additional branches in Pennsylvania, Maryland, Delaware and other states.

Screening factors
As I did previously, I will rank the banks based on four factors: P/E ratio, P/B ratio, dividend yield, and net income margin. Only banks with a market cap over $300 million will be included.

Profitability is important, so I first eliminated all banks without earnings over the past 12 months, looking for the cheapest bank according to this metric. My second factor is the P/B ratio. In the banking industry, a value of 1.5 is reasonable, and the adage I like is "buy at half, sell at two." Only banks that pay a dividend will be included -- the higher the payout, the better. Finally, net income margin will be used as another method of comparing the banks' profitability.

Instead of further screening based on a higher dividend yield, I ranked all 21 banks that met the minimum requirements. I've included the top nine:


P/E Ratio (TTM)

P/B Ratio

Dividend Yield

Net Income Margin

M&T Bank 10.1 0.93 4% 24%
S&T Bancorp (Nasdaq: STBA  ) 12.3 0.80 3.5% 24.5%
Community Bank System (NYSE: CBU  ) 12.6 1.21 4.2% 24.2%
Oritani Financial (Nasdaq: ORIT  ) 22.3 1.12 4% 32.5%
Tompkins Financial (AMEX: TMP  ) 12.0 1.36 3.8% 21.9%
Independent Bank (Nasdaq: INDB  ) 11.2 1.13 3.1% 21%
Valley National Bancorp (NYSE: VLY  ) 12.9 1.46 6.1% 24.3%
TrustCo Bank (Nasdaq: TRST  ) 12.6 1.36 5.3% 20.9%
NBT Bancorp (Nasdaq: NBTB  ) 11.8 1.24 4% 20.7%
Regional Averages 41.0 0.94 2.4% 12.6%

Source:; TTM = trailing 12 months.

Quarterly results cause changes
Region-leading M&T Bank's weak quarterly earnings, in which net income decreased 4.6% from last year, nearly knocked it off its perch atop the Northeast banks. Being the cheapest bank by P/E and also having a top four ranking in both dividend yield and net income margin helped keep the bank on top. By cutting my original list from to nine, out went banks such as Hudson Valley Holding, First Commonwealth Financial, and Washington Trust Bancorp. Oritani Financial made the biggest move up the chart, riding a higher dividend yield up seven spots to fourth overall.

Regional opportunities abound!
While the real lesson from Bank Transfer Day will be learned in the coming months, regional banks offer a better investment in the months ahead. Keep an eye on Northeast leader M&T Bank by adding it to your free, personalized version of the Fool's My Watchlist today.

Fool contributor Robert Eberhard owns no shares in the companies mentioned here. Follow him on Twitter, where he goes by @GuruEbby. The Motley Fool owns shares of FirstMerit, Berkshire Hathaway, Fifth Third Bancorp, and Huntington Bancshares. Motley Fool newsletter services have recommended buying shares of Berkshire Hathaway. Try any of our Foolish newsletter services free for 30 days. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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